The taxman is looming, so it's time to start organising your tech and find out what you can and can't claim to optimise your return.
It's nearly the end of another financial year. But if you don't have a clear plan about how to optimise the cost of your capital and other tech-related purchases, don't fret: it's not too late to make a few more tech purchases that will increase your deductions and help you get ready for the year ahead.
The first area to consider in EOFY planning is your hardware. It's a great time to review your inventory of desktops, laptops and servers to figure out exactly what you need – and what you're not using anymore.
Depending on its initial purchase price, existing equipment is likely already working through a multi-year depreciation schedule that will let you depreciate a certain percent of the residual value from last year – or, if you've chosen the straight-line depreciation method, a fixed value amortised across the useful life of the equipment.
Replacing computers costs thousands, so the key thing to consider here is not just to fill your office with brand-new-shiny things, but to consider whether some of your ageing equipment might not offer more value to the business if it were refreshed for faster, more updated versions. Many companies hold onto equipment until it literally falls apart – by which time it’s offering little tax advantage, and probably holding your employees back in productivity you didn’t even know you could have.
It may also be important to upgrade your systems as they move out of warranty, points out Sean McColl, director of small-business IT support firm WIT Technology. “I can put companies on a five-year cycle for desktops, but if your server is coming up to being three years old, you need to replace it,” he advises. “The hardware vendor warranty is going to expire and you’re not going to get any help from those guys if it dies.”
If you have some good candidates for replacements, weigh up alternatives and don't be afraid to purchase them. Consider, for example, whether a switch to Macs might offer some peace of mind: many converts find the more-than-adequate functionality and increased stability they get from Mac laptops and desktops is well worth taking the plunge.
It’s also a great time to invest in iPads or other tablet computers, or new smartphones offering important mobility features that will benefit your business. If their price is less than $1,000 – and many of today's laptops and desktops are – your business can deduct their entire purchase price in its 2010-11 tax return.
If you're a sold trader or employee buying devices or systems for personal use, you'll need to depreciate anything over the $300 deductable limit, which changes the purchasing dynamics somewhat; consider exploring salary-packaging options to get a more tax-effective way of purchasing mobile devices like laptops, smartphones and tablets.
Before you get carried away by gadget lust, however, remember that just because something is tax-deductible doesn't mean it's free. A $1,000 purchase, deducted at the 30% business tax rate, will save you just $300 – meaning you'll still be $700 out of pocket.
"A lot of people think if they spend $1,000 and deduct it, they save themselves $1,000 in tax,” says Adrian Raftery, a chartered accountant who goes by the moniker ‘Mr Taxman’
and recently released a book of tax-saving tips. Raftery sees many people spending up big before they realise the benefits are less than they expected: “As a general rule,” he says, “don’t spend money unless you have to.”
The OPEX secret
One substantial EOFY strategy that many people may not be aware of is the prepayment of regular service fees. You can prepay up to 12 months’ worth of regular service fees before June 30, then deduct the lot during 2010-11 even if it relates to services provided during the 2011-12 tax year. This strategy provides a convenient way for small businesses to shift recurring service revenue into the current tax year – offering a way of reducing assessable income from an unusually high business year.
If you look around, you’re probably paying more and more subscription fees: monthly wireless broadband fees, internet fees, phone fees, utility bills, support contracts, even subscriptions for online news sites and other business-related web sites. If you have a bit of extra cash lying around, prepay part or all of the year to ease bill pressure next year – and get the tax benefit this year.
Prepaying operational expenses is particularly relevant these days, where more and more businesses are exploring the use of cloud-based services rather than shelling out hundreds of dollars to buy software for themselves. This includes everything from Google Apps for Business to Salesforce.com customer relationship management, Netsuite ERP, Web hosting, Xero accounting, antivirus and security services from the likes of Symantec and McAfee, online storage services like Mozy and Carbonite, and even personal storage services like Dropbox.
If you haven’t already explored the potential benefits of these and other cloud services, it may be a good time to do so now, as a matter of course. And if you like them, prepaying provides you with access to cutting-edge technology with a host of financial benefits – and, since these apps run through any web browser, they could actually save you the capital expense of buying new computers.
This, that and the other
Another important category to consider is consumables: if you’re running low on laser printer toner or inkjet cartridges, for example, make sure you top up your supply cabinet. The same deduction limits apply and you’re going to have to buy them some day – so stocking up for the year ahead can be a great way of getting a healthy deduction. Just make sure your printer is in good working order and, if possible, still under warranty: you don’t want to buy a dozen inkjet cartridges only to have the unit die on you, and be forced to test your supplier’s consumables exchange policy if you can’t repair the printer.
Another consumable you may not immediately think of is USB storage drives and external hard drives, which are generally twice as large for the same price this year as last. If you don’t have a formal backup strategy in place, take this opportunity to fix that situation.
At the very least, have one external drive attached to each desktop and server, with the same capacity as the system it’s attached to and automatic backup software running continuously. If you have more than a handful of systems, you may also want to invest in one big network-attached storage (NAS) unit and back up your data from all the computers onto this box. Discuss the best option with your tech support people.
By taking the time to re-evaluate your business and the technology that supports it, you may be surprised at how many deductions you can come up with. And with so many opportunities to improve your business in the process, why not make this the year you stop saying “next year”?
Five tips for a bigger deduction
True to its title, chartered accountant Adrian Raftery’s new book offers ‘101 Ways To Save Money On Your Taxes – Legally!’. Here are five of Raftery’s biggest tips for small businesses staring down the barrel of EOFY.1. Purchase depreciable assets under $1,000
As discussed, small businesses can write off any capital expense under $1,000 without depreciating the equipment. Just remember not to overspend: you’re only saving 30% of the money you pay, so deductable equipment still costs money.2. Prepay expenses
It’s not only about prepaid internet and mobile broadband: given the number of online services that now come with monthly subscriptions – including hosted applications, antivirus services, online backup and storage and more – there are many ways to get a big deduction now while reducing your expenses during the next financial year.3. Rationalise trading stock
If your business involves managing inventory, don’t forget to do a detailed stocktake and write down obsolete stock. You may be surprised what you find.4. Write off bad debts
This one isn’t purely tech-related, but it’s good business practice: make sure you track your debtors and write down debts that will never be collected.5. Good record keeping
As a general rule, staying organised is the best way to track your expenses (and deduct them) as effectively as possible. This also extends to managing your assets as effectively as possible: keep receipts for purchase of your tech gear and mark the dates your warranties expire on your calendar so you’re never surprised later on.